Health Insurance Companies Seeking Partners

healthThe nation’s biggest health insurers are speed-dating one another, searching for a partner worthy of a multibillion-dollar merger.

Anthem Inc. and other industry giants are flush with cash and eager to swallow up competitors as they increasingly vie for individual customers on Obamacare exchanges and government business tied to Medicare and Medicaid.

As a result, employers and consumers may be left with fewer choices and little relief from ever-rising medical costs, experts say.

The deal chatter started last month with reports of Humana Inc. attracting interest from Anthem, Aetna Inc. and Cigna Corp. The smaller Humana is prized for its strong presence in Medicare Advantage plans, a growing market as baby boomers retire.

There are many combinations here. No one wants to be left out of this dance.

– Ana Gupte, a healthcare analyst at Leerink Partners

Then the merger frenzy hit a fever pitch this week with news that Anthem made a bid for Cigna, the fifth-largest health insurer by enrollment. Not to be counted out, industry leader UnitedHealth Group Inc. made an offer for Aetna, the third-largest health insurer, the Wall Street Journal reported. The health insurers involved have all declined to comment on the possible tie-ups.

When the dust finally settles, some analysts expect the three largest companies ? UnitedHealth, Anthem and Aetna ? to emerge even stronger. A UnitedHealth-Aetna combination could further narrow the field to two giant publicly traded companies: UnitedHealth and Anthem.

“There are many combinations here. No one wants to be left out of this dance,” said Ana Gupte, a healthcare analyst at Leerink Partners.

The consolidated companies would be able to take advantage of the revenue growth from the Affordable Care Act and the privatization of Medicare and Medicaid, she said.

The health insurance sector has seen its fortunes soar during the health law’s expansion of subsidized, private coverage and Medicaid, the joint state-federal insurance program for the poor.

Shares of Anthem, the nation’s second-largest health insurer, have jumped 85% since January 2014 while the broader stock market has returned 16% for the same period.

Insurers have welcomed the infusion of new members as growth slowed in their conventional employer benefits business.

But rising membership and revenues haven’t translated to fatter profit margins for much of the industry, said Jeffrey Loo, healthcare equity analyst at S&P Capital IQ.

Fitch Ratings analysts said that pressure on profit margins could intensify as federal officials and employers push harder to reduce healthcare costs.

The supersized insurers may be able to use their big numbers to win better terms and lower prices from hospitals, doctors and drug makers. It also may ease the competition on Obamacare exchanges and in bidding for Medicaid managed-care contracts from cash-strapped states.

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